Consumer and Shopper Insights February 2011

The decade ahead: Trends that will shape the consumer goods industry

By Ishan Chatterjee, Jrn Kpper, Christian Mariager, Patrick Moore and Steve Reis

The consumer-packaged-goods (CPG) industrys growth over the past quarter century has been nothing short of exhilarating. CPG companies have launched innovative products to meet an ever-growing array of human needs and desires. They have expanded rapidly into the burgeoning consumer markets of the developing world. A nd to make this breakneck growth possible and profitable, they have aggressively built global scale along every part of the value chain. These strategies, along w ith increased margins and weighting of portfolios toward fast- growing categories, have delivered stellar shareholder returns. But the past is no guide to the f uture. Over the coming decade, upheavals in global consumer and supply markets are likely to produce as many losers as w inners among CPG companies. For example, A sia w ill overtake the West as the main consumer market, and it w ill demand new levels of value and innovation from CPG players. Rising Internet penetration could upend traditional sales models. Globalized trading and natural-resource shortages could combine to usher in a new age of supply chain volatility.

In this article, we profile an analytical approach, developed by McKinseys CPG practice, that allows executives to filter the myriad potential future trends to anticipate the few that could truly affect their companys competitive advantage. We then apply the approach to the CPG industry in aggregate, underlining the forces most likely to move the needle on value creation over the coming decade and pointing to the strategic questions that CPG companies must answer if they are to profit from these forces.

markets. But leading CPG players have not simply followed economic and demographic trends: they have actively anticipated them in their strategies and investment choices. To start, the industry has been relentless about new-product innovation. In the US grocery channel, for example, the number of SKUs has grown by 50 percent in just the past seven years.1 Constant innovation, along with a knack for passing on input-cost increases, has allowed the industry to boost its margins significantly. Further, CPG companies have expanded rapidly beyond their traditional Western bases. Emerging markets have contributed more than half the global revenue of the Coca-Cola Company since 2006, and almost half of PepsiCos 2009 revenue was generated outside of the United States. At the same time, CPG companies have aggressively shaped their portfolios to increase the proportion of the fastest- growing and most profitable categories, creating considerable momentum growth. Witness Nestls recent acquisitions in high-growth food categories such as baby food (Gerber), pet food (Purina), and frozen pizza (from K raft).

The strategic choices behind the industrys success

Before assessing the trends of the f uture, it is worth asking what has driven the industrys extraordinary performance in recent decades. US-listed CPG companies, for example, have increased total returns to shareholders (TRS) by an annual average of 10 percent over the past 25 years, outperforming not only the broader S&P 500 index but also high-growth industries such as information technology, energy, and telecom (Exhibit 1). To be sure, this growth has taken place on the back of steadily rising incomes and population, particularly in emerging

Food Marketing Institute, The Food Retailing Industry Speaks 2010

The decade ahead: Trends that will shape the consumer goods industry

Exhibit 1 To make this expansion possibleand profitableCPG players have invested Since 1985, the CPG industry has significantly outperformed the S&P 500 Exhibit 1 heavily in building global scale along every part of the value chain, including R&D, marketing and sales, procurement, Compound annual growth rate (CAGR) Weighted average CPG total return to shareholders manufacturing, and distribution. % (TRS) index vs S&P 500 TRS index1 Unilevers ice-cream business is a salient 19852009 1985 = 100%, adjusted for inflation example: it has rolled up its fragmented 1,000 brands under the heart umbrella brand, CPG 10.0 established a single global ice-cream 800 headquarters in Italy, and consolidated S&P 500 8.6 The decade ahead: manufacturing in 16 plants worldwide. 600 Trends that will shape the consumer goods industry Even over the tumultuous last three years, CPG companies have performed well, 400 thanks in large part to their diversified exposure to faster-growing emerging 200 markets and their longer-term pursuit of scale and efficiency.
0 1985 1990 1995 2000 2005 2009

Have the rules of the gamechanged? A f ramework to analyze f uture t rends

The only constant is change, in the words of the ancient Greek philosopher Heraclitus. The upheavals in global Exhibit 2 consumer, retail, and supply markets over the coming decade threaten to w reak havoc on established business models and marketing approachesand promise huge rewards for those best able to anticipate new opportunities. How should CPG companies go about analyzing these forces and prioritizing those w ith the greatest likely impact on their own competitive advantage? McKinsey has developed an analytical methodology to help executives provide fact-based answers to these questions. Here we provide a snapshot of the methodology, f iltering an array of global trends to prioritize the few that w ill have the greatest impact on the profits of the CPG industry in aggregate over the coming decade. For an individual company or a particular category, a tailored version of this f iltering exercise would y ield distinct results.

1 US-listed companies with real revenue (2003 currency) of more than $1 billion in any of the past 25 years Source: Corporate performance analysis tool (CPAT); McKinsey analysis

Exhibit 2the industry has been relentless about new-product innovation. In the To start, US grocery channel, for example, the number of SKUs has grown by 50 percent in Trends that could influence performance over the next decade just the past seven years.1 Constant innovation, along with a knack for passing on input-cost increases, has allowed the industry to boost its margins significantly.
A billion new consumers Consumers going green Further, CPG companies have expanded rapidly beyond their traditional Western Shifting demographics bases. Emerging markets have contributed more than half the global revenue of Demand Rise of digital consumers trends the Coca-Cola Company since 2006, and almost half of PepsiCos 2009 revenue Health and wellness concerns was generated outside of the United States. At concentrationime, CPG companies Modernization and the same t of trade CPG have aggressively shaped their portfolios to isegment the proportion of tperformance he fastest- Rise of the value ncrease growing and most profitable categories, creating considerable momentum growth. Witness Nestls recent acquisitions in high-growth food categories such as baby food (Gerber), pet Rising (Purina), and frozen pizza (from Kraft). food trade protectionism External

To make this expansion possibleand profitableCPG players have invested heavily in building global scale along every part of the value chain, including R&D, marketing and sales, procurement, manufacturing, and distribution. Unilevers ice-cream business is a salient example: it has rolled up its fragmented brands under the heart umbrella brand, established a single global ice-cream Increasingly volatile input costs Supply headquarters in Italy, and consolidated manufacturing in 16 plants worldwide. Labor shortages in emerging trends Even over the tumultuous last tmarkets ears, CPG companies have performed hree y well, thanks in large part to their diversified exposure to faster-growing emerging markets and their longer-term pursuit of scale and efficiency. In our industry-wide analysis, we considered 11 global trends (Exhibit 2) across the demand side (for example, the rise of the value-orientated consumer 1 Food Marketing Institute, The Food Retailing Industry Speaks he e segment), the supply side (say, increasingly volatile input costs), and t2010xternal environment (for instance, rising trade protectionism). While not exhaustive, this list includes the principal forces likely to affect the CPG industry as a whole. An analysis tailored for a particular company would include specific regional

factors

Changing tax regimes

 The rise of the digital consumer The shift to value The impact of demographic shifts, including aging, on consumption patterns Increasingly volatile input costs, driven by natural-resource shortages and the emergence of fewer, bigger suppliers This is not to say that the other trends wont matter in the decade ahead. For example, green consumerism could combine with regulation to prompt CPG companies to reduce their impact on the waste stream by greatly reducing packaging. But in shaping strategy, companies need a fact-based way to rank and quantify trends for their likely impact on profits. By this measure, our analysis suggests that green trends and other headline-grabbers such as health and wellness will have less impact on global CPG value creation than the five major trends above.
In our industry-wide analysis, we considered 11 global trends (Exhibit 2) Exhibit 3 across the demand side (for example, the rise of the value-orientated consumer segment), the supply side (say, increasingly volatile input costs), and the external environment (for instance, rising trade protectionism). While not exhaustive, this list includes the principal forces likely to affect the CPG industry as a whole. An analysis tailored for a particular company would include specific regional or sector trends, such as food-industry regulations to prevent obesity. Our next step was to prioritize these 11 trends. First we sized each trend according to its likely impact on CPG companies gross profits.2 Then we evaluated the likelihood of the occurrence of each trendgauging the momentum behind it, its resilience to external shocks, and the degree to which analysts and stakeholders are aligned on it. Finally, we assessed the importance attributed to each trend by CPG companies in their public communications. Through this f iltering process, we identified f ive trends that are both highly probable and likely to have large impact on industry profits (Exhibit 3): A billion new middle-class consumers in emerging markets The rise of the digital consumer The shift to value The impact of demographic shifts, including aging, on consumption patterns Increasingly volatile input costs, driven by natural-resource shortages and the emergence of fewer, bigger suppliers This is not to say that the other trends wont matter in the decade ahead. For example, Exhibit 3

Our analysis identified 5 key forces

High Group 1 Factor that everyone is talking about, but companies need to approach it in a more nuanced manner

Focus of more than 5 of top 10 CPG companies Focus of 1-5 of the top 10 CPG companies Not mentioned by any of the top 10 CPG companies

Billion new consumers Group 2 Factors that a few companies are talking about, but are likely to be important Shifting demographics Group 3 Factors that no one is talking about, but should be on the industrys radar

Increased trade protectionism2 Impact on profits1 Rise of the digital consumer

Changing tax regimes2 Medium

Health and wellness Consumers going green

Rise of the value segment Increasingly volatile input costs

Modernization and concentration of trade

Labor shortages in emerging markets Low Low Medium Probability of occurrence High

1 Classification guide: high = profit at stake >$300 billion; medium = profit at stake between $100 billion and $300 billion; low = profit at stake <$100 billion 2 Please note that these factors have not been sized due to the number of variables involved; these are estimates of likely impact Source: McKinsey analysis

green consumerism could combine with regulation to prompt CPG companies to reduce their impact on the waste stream by greatly reducing packaging. But in shaping strategy, companies need a fact- based way to rank and quantify trends for their likely impact on profits. By this measure, our analysis suggests that green trends and other headline-grabbers such as health and wellness will have less impact on global CPG value creation than the five major trends above.

creation potential that each of these trends offers? Let us consider each trend in turn. A billion new consumers in emerging markets This decade marks the tipping point in a f undamental long-term economic rebalancing. In the coming years, the growth of emerging markets w ill continue to outstrip that of the developed world by a w ide margin. While the emerging countries in A siamost notably China, India, and Indonesiaalready had a significant share of global growth (18 percent) throughout the last decade, this growth share is expected to increase to nearly 30 percent in the next decade. A s a result, the global middle class w ill expand dramatically: by 2020, there are expected to be more than 1 billion new consumers spending between $10 and $100 per day3 (Exhibit 4).

Five forces that will shape the industrys f uture

How, then, will each of these five trends shape the industrys fortunes over the next decade? And what are the strategic questions that CPG companies must answer if they are to unlock the value-

2 3

For the sake of this analysis, we assumed that currencies will maintain their current relative valuations through 2020. Organisation for Economic Co-operation and Development (OECD) Development Centre, The Emerging Middle Class in Developing Countries, January 2010

A billion new consumers in emerging markets

This decade marks the tipping point in a fundamental long-term economic rebalancing. In the coming years, the growth of emerging markets will continue to outstrip that of the developed world by a wide margin. While the emerging countries in Asiamost notably China, India, and Indonesiaalready had a significant share of global growth (18 percent) throughout the last decade, this growth share is expected to increase to nearly 30 percent in the next decade. As a result, the global middle class will expand dramatically: by 2020, there are expected to be more than 1 billion new consumers spending between $10 and $100 per day3 (Exhibit 4).
Nearly everyone agrees on the importance of this trend, but understanding these Exhibit 4 new consumers and meeting their needs will be no simple matter for CPG players. Those who get it right stand to earn tremendous competitive advantage. Success factors w ill include the selection of categories and marketsto ensure that the company builds a leading position everywhere it playsas well as segmenting the billion new consumers and innovating to meet their needs. Exhibit 4

The global middle class will add more than 1 billion people by 2020
More than 85 percent of middle class growth expected from AsiaPacific region through 2020
4,884

Global middle class1 Millions of people

322 680 313

3,249

North America Europe Central and South America

333 703

Consider the example of Wrigley chewing 251 1,845 3,228 Asia-Pacific gum in China: the company has captured 338 40 percent of a fast-growing category 664 1,740 already worth $2 billion. Its tactics 181 include regular launches of products Sub-Saharan Africa 32 525 107 105 Middle East and North Africa tailored to Chinese consumers, such as 234 165 57 gum f lavored w ith herbal essences and 2009 2020 2030 grapefruit; intensive consumer education 1 Global middle class defined as daily expenditures between $10 and $100 per person in purchasing parity terms. Source: Organization for Economic Co-operation and Development (OECD) Development Centre to emphasize chewing gums health benefits; and building a presence in the millions of small outlets where Chinese Within Chinas wealthy population, the headquarters to be located in Europe consumers t ypically shop. for example, MEconomic Co-operation or North A merica? 3 Organisation for cKinsey research has and Development (OECD) Development Centre, identified seven distinct egments, The Emerging Middle Classsin Developing Countries, January 2010 Further, w inning CPG companies are ranging from the flashy, who care about The rise of the digital consumer likely to be those that create valueoriented showing off exclusive brands but are While technology has played a key role in products. In Chinas ready-to-drink coffee willing to purchase counterfeit goods, the consumer goods industrys growth, market, for example, Nestl has reduced to the urbane, who care more about it w ill be truly disruptive in the coming prices by 30 percent. To make this quality and refuse to purchase counterfeit decade. In f iguring out how to w in in possible, it has cut its costs by establishing products.4 Across emerging markets, this new digital world, CPG companies a local supply base in Yunnan, and its thoughtful segmentation w ill reveal many face some major strategic questions sourcing is now 99 percent Chinese. In opportunities to create valueand build including how to build a successful India, Cadbury has introduced products healthy marginsby meeting specific business through online retail channels, at low price points (such as its Perk consumer needs. how to build brands and categories in brand) to attract more consumers to the a socially networked world, and how to chocolate category. However, as emerging Finally, CPG companies w ith Western exploit technology-driven opportunities markets account for an increasing roots w ill need to consider how the rise to understand consumers more deeply proportion of CPG sales, companies of emerging-market consumers might and connect w ith them more often. will struggle to maintain their margins. affectand transformtheir own Building scale w ill be one way of doing so; organizations. For a company w ith, say, 70 The proportion of sales v ia online skillful segmentation of emerging-market percent of its sales in China and India by channels may be reaching a tipping point. consumers w ill be another. 2020, would it still be appropriate for the In the United States, e-commerce now board to be dominated by Westerners and represents a $155 billion market, an estimated 6 percent of total retail sales.5

4 5

McKinsey Insights China; Yuval Atsmon, Vinay Dixit, Max Magni, and Ian St-Maurice, Chinas new pragmatic consumers, McKinsey Quarterly, October 2010. Forrester Research, US Online Retail Forecast, March 2010

make a strategic choice on whether and how to follow suit. Some have taken up the challenge: P&G, for example, is piloting its own e-commerce site, w ww. pgestore.com. However, manufacturers must weigh the trade-offs, and for many the economics of launching a branded e-commerce site w ill prove unfavorable. For those who decide against launching their own Web stores, online retail platforms such as A mazon.com and A lice. com offer direct access to consumers. Digital technology w ill have just as great an impact on brand communication. Consumers are more reliant than ever on referrals: 70 percent look to user reviews to inform their purchase decisions.8 Moreover, digital marketing is no longer just about one-way communications to consumers. User- generated content can be difficult to control, but it also offers one of the best ways to influence consumer opinion. In addition, social media provides an important channel for CPG companies to listen to consumers w ithout the biases created by conventional research techniques. CPG companies are just starting to tap into social media to understand brand buzz, monitor the impact of campaigns, and even gain input into new product development. For example, Unilever used co-creation with its online community to develop Axe Twist, a fragrance that changes throughout the day. Companies that ignore this important new information source risk being slower to respond and adapt to their consumers changing needs.

New media requires new capabilities, including rigorous performance tracking, extensive digital-marketing analytics, and f lexible vendor management. Winning CPG companies w ill be those that invest in these capabilities to keep pace w ith the digital consumer. The shift to value The global f inancial crisis has driven consumers to value offerings, and it is a trend that is likely to stick. Recent McKinsey research suggests that 70 percent of US consumers are looking for ways to save money.9 Fifteen percent are trading down to cheaper brands during the recession, and almost half of consumers say their experience w ith cheaper brands, including private labels, has exceeded their expectations.10 The shift to value has major implications for the CPG industrys profit formula. Not least, it could erode the pricing power of brands. Indeed, our analysis suggests that private-label players are riding the value trend to become a serious force across CPG categories, accounting for more than 40 percent of supermarket sales in the United K ingdom, more than 30 percent in Germany, and more than 15 percent in the United States. CPG players are employing a variety of strategies to address this trend. Some companies are trying to minimize retailers need to launch their own private-label brands. For example, a major chocolate company reduced its pack size in the United K ingdom from 150 grams to 125 grams in order to keep the 1 ($1.60) pack price on the shelf, a key concern for retailers. Some companies

In the United K ingdom, as many as one- third of adults say they now regularly shop for food online;6 the same is true in Germany for apparel.7 In China, the online retail market has more than doubled in each of the last three years and could exceed 1.3 billion renminbi ($200 million) by 2013. To capture their fair share of this rapidly growing channel, CPG companies must raise their game w ith online retailers. They must work in close partnership w ith retailers to manage their online shelf space (including how prominently their products appear on Web listings), run joint targeted campaigns, and in general expand the category online. There may also be the opportunity to sell directly to consumers. Manufacturers in other consumer-facing industries have successfully shifted consumers to e-commerce, allowing them to conduct transactions and even customize products on branded sites. CPG companies must

6 7 8 9 10

Mintel International Group, Online Grocery Retailing UK, September 2009 ENIGMA GfKs online shopping survey, April 2009 Survey by Penn Schoen Berland, published in BusinessWeek, October 2009 McKinsey Consumer Sentiment Survey V, September 2010 McKinsey New Normal Survey, March 2010

goods industry

are rationalizing their price lists to help retailers control SKU proliferation. Other companies are riding the shift to value by running joint promotions with private-label brands in adjacent categories. One major CPG company in the United States is running joint displays and promotions with private-label players; for example, consumers receive a discount if they buy a national brand of cheese along with a private-label bread brand. Still other CPG companies are meeting the private-label challenge head-on by introducing directly competing lower- priced products and through direct comparisons in advertising that highlight the superiority of their own product. Indeed, the winning companies of the future will be those best able to develop strong value brands with both excellent functional benefits and competitive prices. The shift to value w ill make scale an even greater competitive advantage than before. The leading CPG companies have already harnessed their global scale to reduce costs, pushing work to low- cost centers and spreading f ixed costs over a broader business. The stronger a companys overall market position and the more number-one category positions it holds, the better equipped it w ill be to win in a value-focused world. The impact of demographic shifts on consumption patterns While consumer markets center of gravity will shift inexorably toward the developing world over the coming decade, there will also be profound demographic changes across all markets. In particular, the worlds population is aging quickly. The United Nations projects that the total

population of people older than 65 will double to 1 billion over the next 20 years.11 By 2030, one in four Western Europeans will be elderly, as will one in five North Americans. But the trend will be just as marked in the developing world: Chinas over-65 population will double to 16 percent of its total population, while Indias will almost double, reaching 8.5 percent. CPG companies w ill need to f ind innovative ways to meet the needs of aging consumers. For example, Unilevers Dove recently launched Pro-Age, a line of deodorants, hair- care products, and skin-care products, to target female consumers between the ages of 54 and 63. In packaged food, ConAgra targets seniors w ith its Golden Cuisine brand, which offers nutritionally balanced food in packaging that features easy-to-read, large fonts. While aging represents one major global demographic trend for which CPG companies must prepare, there are others that w ill be just as important in key markets. In the United States, for example, Hispanics w ill make up 23 percent of the population in 2030, up from 16 percent today, while the white population w ill fall from 65 percent to 55 percent.12 The Census Bureau predicts that the majority of children w ill be nonwhite by 2023. Moreover, despite the global aging trend, pockets of younger consumers are growing in key markets. In sub-Saharan Africa, where many observers expect rapid economic growth in the coming decade, the United Nations predicts the under-50 population will grow 23 percent, reaching about 700 million by 2020.

These micro-demographic shifts create additional opportunities for CPG companies to capture growth. In the United States, for example, many companies are experimenting to capture the growing Hispanic segment. K nowing that heavily-scented products are popular with Hispanics, P&G recently launched Gain laundry detergents in lavender, citrus, and apple-mango scents. A nd for the f irst time, P&G used a specialized marketing f irm as its lead agency for Spanish-language media. 13 Increasing supply chain volatility We have considered four demand-side trends. Just as disruptive, however, will be one trend from the supply side: increasingly volatile input costs, driven by the emergence of bigger, fewer suppliers and natural-resource shortages. For the most successful CPG companies, globalized trading has represented a huge opportunity to expand into new markets and consolidate supply and production. Yet globalization, combined with specialization, has also triggered a

11 World Population Prospects, 2008 revision, United Nations (Population Division) 12 US Census Bureau national population projections, 2008 13 P&G taps into popularity of heavier scents, Financial Times, October 20, 2010

The decade ahead: Trends that will shape the consumer goods industry

sharp increase in the global volatility of commodity input prices. Global supply Exhibit chains that have created so much value 5 in the past could be exposed to higher volatility in the f uture. The increasingly concentrated production of several key commodities illustrates this trend. For example, 57 percent of the worlds sugarcane is now produced in Brazil and India (Exhibit 5), while China and Russia together account for close to half of the worlds aluminum production. A natural disaster or political crisis in any one of these countries could cause severe disruption to global supply chains. Indeed, the 2010 earthquake in Chile had just this effect on the global pulp market, cutting supply by 8 percent and triggering a spike in prices. Similarly, in late 2009, a f ire at one acrylic acid plant in Texas, combined w ith mechanical issues on one Dow Chemical asset, created a global shortage in superabsorbent polymer, the key ingredient in diapers, feminine-care products, and adult-care products. Potential natural-resource shortages notably, ever-increasing stress on the global water supplyfurther increase volatility. As populations grow and urban areas expand, the United Nations predicts water withdrawals will increase 50 percent by 2025 in developing countries and 18 percent in developed countries.14 As water shortages affect manufacturing centers for CPG inputs, price increases could spread quickly across the supply chain. CPG companies face some tough strategic questions as they ponder how best to manage risk in light of this increased

Exhibit 5
Increasing global concentration of commodity inputssugarcane
Million tons Global sugarcane supply % of total tonnes produced 100% = 993 1,276 1,743

26

27

37

Brazil

20
6 3 3

22
7 4 4

20
7 4 4

India China Thailand Pakistan All others

42

36

28

1988 % produced in top 5 countries 58

1998 64

2008 72

Source: Food and Agriculture Organization of the United Nations (FAOSTAT)

volatilityincluding the price they are them to gauge and protect t The increasingly concentrated production of several key commodities he value at willing to pthis tsecure lor example, 57 percent of ftrom sorlds sugarcane scope the ay to rend. F ong-term supply risk he w uch trends and to illustrates stability, how to reduce commodity (Exhibit 5), while China and Russia huge value-creation opportunities they is now produced in Brazil and India and natural-resource ilose to half of he worlds aluminum orthcoming articles, we represent. In f production. together account for c nputs across t the product line, and how to build f lexibility will share our perspectives on how CPG A natural upply chains. Navigating into their sdisaster or political crisis in any one of these countries could cause to companies can develop the strategies severe disruption to global supply chains. seize t the 2010 earthquake exposure to this volatility requires a new Indeed, hose opportunities. in Chile had jisk this effect on paradigm in rust management. the global pulp market, cutting supply by 8 percent and triggering a spike in prices. Similarly, in late 2009, a fire at one acrylic acid plant in Texas, combined with mechanical issues on one Dow Chemical asset, created a global shortage in http://csi.mckinsey.com the key superabsorbent polymer, ingredient in diapers, feminine-care products, and adult-care products. In the coming decade, CPG companies will encounter structural shifts from Potential natural-resource shortagesnotably, ever-increasing stress on both the demand and supply sides that the global water supplyfurther increase volatility. hatterjee is a consultant in the Ishan C As populations grow are likely to be more disruptive than any and urban areas expand, the United Nations predicts water rn Kpper and Christian withdrawals London office. J they have seen in recent history. Is your will increase 50 percent by 2025 in developing countries and 18 percent in Mariager are directors in the Cologne and company ready? developed countries.14 As water shortages affect manufacturing centers for New Jersey offices respectively. Patrick CPG inputs, price increases could spread quickly across the supply chain. Moore is a principal in the Atlanta office, The analytical approach described in where Steve Reis is a consultant. this acompanies face some tough strategic questions as they ponder how rticle allows executives to assess CPG the bto manage risk in light of this increased volatilityincluding the usiness impact of f uture trends in a best fact-based, quantified to pay to secure long-term supply stability, how to price they are willing way. It also enables

reduce commodity and natural-resource inputs across the product line, and how to build f lexibility into their supply chains. Navigating exposure to this volatility requires a new paradigm in risk management.

14 UN Environment Programme, Global Environment Outlook: Environment for Development, 2007 14 UN Environment Programme, Global Environment Outlook: Environment for Development, 2007